Insights from BCC Research

As Battle Over U.S. Drug Prices Wages on, Can a Treaty be Reached?

Many voices, two sides of the same coin. A coin multiplying so rapidly that prescription drug costs are becoming unsustainable for both insurers and patients. These costs are also exacting a toll on the US healthcare system. Add to that, the fast translation of research findings to new treatments is making it hard for the US healthcare delivery system to keep up. Predictable rates of increase in medical costs, upon which current payment systems were constructed, are no longer predictable. A chorus of patients, drug makers, government parties, payers, and other organizations are all vying for their voices to be heard amid the battle cry.

Heads or tails? As drug costs continue to rise and attract scrutiny, both payers and the public are calling for more transparency in how prices are set for new treatments. Heads: It has been shown that some patients take less medication than prescribed, or avoid filling prescriptions altogether, because of concerns about cost. Sometime, patients cannot gain access to medications to begin with, due to restraints put in place by insurers. Tails: Drug makers maintain that drug prices reflect the billions of dollars spent on R&D, both for treatments that are approved and for those that fail. They also argue that high-priced drugs save money in the long run by avoiding expensive procedures or lengthy hospital stays down the road. The lack of bargaining power by the largest US health programs, Medicare and Medicaid, is also reflected.

US HEALTH PROGRAMS: EXPECT TO SPEND AN ADDITIONAL $49B OVER THE NEXT DECADE

Health consultancy Avalere projected the fiscal impact of ten pipeline drugs (designated as Breakthrough Therapies by the FDA) to Medicare, Medicaid, and the health insurance exchanges created by the Affordable Care Act. The medications analyzed (three for hepatitis C, one each for diabetic retinopathy and cystic fibrosis, and five for oncology indications) are likely to result in medication costs to the US government of $49.3 billion over a ten-year period ($31.3 billion in Medicare spend, $15.8 billion in state and federal Medicaid spend, and $2.1 billion as a result of subsidies provided through exchange plans).

DO CONSUMERS HAVE MEDICARE'S BACK?

Consumers are weighing in too, of course. A recent poll by the Kaiser Family Foundation found that 87% of respondents want Medicare to be allowed to negotiate with drug companies to set lower medication prices, a practice that is currently prohibited by law. Previous efforts to give Medicare this bargaining power have not been successful, due to opposition over government interference in the marketplace. In another recent Kaiser poll, 73% of participants thought prescription drug prices were unreasonable. Over three-quarters of those people said it was because manufacturers set drug prices too high.

HEPATITIS C DRUGS ARE CHEAPER THAN LIVER TRANSPLANTS..IF YOU CAN GET THE DRUG

The pushback furor arguably began with Gilead Sciences’ (and later, AbbVie’s) high-priced drugs for hepatitis C. In response to the sticker shock, insurers tried to limit patients’ access to these drugs: Gilead's Harvoni (with an $84,000 price tag) and Sovaldi ($94,500), and AbbVie's Viekira Pak ($83,320). But a forthcoming analysis may thwart some insurers’ efforts to limit access to the drugs.

A panel assembled by the American Association for the Study of Liver Diseases (AASLD) and the Infectious Diseases Society of America (IDSA) says that at their currently discounted (by about 40%) prices, the Gilead and AbbVie drugs are cost-effective. Further, the panel deemed the drugs cost-effective even for those patients who, by their health plan’s criteria, haven’t yet qualified for access because they are not “sick” enough. In other words, their livers are not yet damaged enough to breach the restricted-access barrier. The panels’ backing of the drugs’ cost-effectiveness could potentially help doctors and patients make their cases for insurance coverage.

Even with some insurers trying to limit access to the drugs, prescriptions for hepatitis C meds have more than doubled to 48,000 for Q1 2015, compared with 20,600 for the same period of 2014, according to IMS Health data. A new study by BCC Research projects the global liver diseases treatment market to approach $33.8 billion by 2019.

COST IS AN INCREASING BURDEN FOR CANCER PATIENTS

Recognizing that value and cost are among the biggest issues in healthcare today, the American Society of Clinical Oncology (ASCO) debuted its ASCO Value Framework. It was developed by ASCO’s Value in Cancer Care Task Force, with input from oncologists, patient advocates, representatives of the pharmaceutical and insurance industries, and others. Newly approved cancer drugs cost an average of $10,000 per month, with some exceeding $30,000 per month. Not surprisingly, many patients keenly feel the impact because they pay a significant share of drug costs through health insurance deductibles, co-payments, and other out-of-pocket expenses. Studies have also shown that some cancer patients take less medication than prescribed, or avoid filling prescriptions altogether, because of concerns about cost.

BCC Research notes that biosimilars (which are less expensive than brand-name biologics) will be a huge market driver in the coming years. Biosimilars are entering an important period of development, and it is anticipated that the market will evolve to 2024 along with many new players in the biological cancer drug space, says BCC.

NOW ENTERING: CYSTIC FIBROSIS

Vertex’ new drug for cystic fibrosis, Orkambi, carries a hefty $259,000 per year sticker. And now, less than three weeks after its debut, the pushback is right on track. As reported by the Boston Globe, a group of doctors is going public with its pricing fight, which has been simmering since Vertex’ first cystic fibrosis treatment, Kalydeco, became available a few years ago. Vertex justifies Orkambi’s price four ways: The drug has a small patient population; the clinical benefit it confers by treating the underlying cause of cystic fibrosis; the time and cost invested bringing it to market; and the need to invest in further R&D to aid thousands of other patients with different forms of cystic fibrosis. Critics, however, have pointed out that other parties--including the National Institutes of Health and the Cystic Fibrosis Foundation--have helped with research funding.

NOVARTIS PUSHES BACK: TOYING WITH PAY-FOR-PERFORMANCE

Novartis recently unveiled a pricing plan that it will test when it launches its new heart failure drug. Entresto is expected to generate billions of dollars in annual sales but will compete with very cheap, older medicines. Under the proposed “pay-for-performance” model, healthcare customers would initially get Entresto at a discount, but ultimately pay Novartis more if the drug reduces the need for costly hospital visits. This outcomes-based plan is designed to win payers' favor. But the CMO (Steve Miller) at pharmacy-benefits manager Express Scripts is among those who have expressed skepticism.

UnitedHealth, the United States' third-largest pharmacy-benefits business, said it will push for refunds when medications don't work for patients. Its pharmacy-benefits arm, OptumRx, already has a deal with Gilead to link payments to the performance of its hepatitis C treatments. OptumRx is in the process of negotiating similar deals with drug makers for PCSK9 inhibitors to lower cholesterol, treatments for multiple sclerosis, and rheumatoid arthritis medicines. Under this model, payments or refunds would be tied to measurable outcomes of the drug.

Nonprofit gathers $5.2 million to investigate US drug pricing.

Some help has arrived, in the form of $5.2 million in private funding to investigate drug pricing in the United States. The Institute for Clinical and Economic Review (ICER) received a grant from the Laura and John Arnold Foundation (LJAF) to look at how new drugs are priced and evaluated. Under the new initiative, ICER will be able to track how much a drug actually improves patients' lives and delivers value to the healthcare system. ICER’s first two reports, which will focus on PCSK9 medications and the above-mentioned Entresto, will be released in September 2015, with 15–20 reports to follow over two years.

THE NEXT WAVE -- PCSK9 MEDICATIONS FOR LOWERING CHOLESTEROL

The FDA is expected to soon approve the first in a new class of cholesterol-lowering drugs known as PCSK9 inhibitors (the subject of one of ICER’s initial reports). Their approval appears likely to trigger the next uproar over the high price of drugs in the United States. It has been estimated that the new PCSK9 medications could cost $7,000 to $12,000 per year. That’s far less than the above-mentioned drugs for cystic fibrosis, certain cancers, and hepatitis C, but it is far more expensive than many of the existing statin drugs, which now come in cheap generic forms. The first of the PCSK9 drugs, produced by Sanofi and Regeneron, could be approved by the FDA this week. The second, developed by Amgen, won approval in Europe and could receive approval for use in the United States later this summer. Pfizer also has a PCSK9 inhibitor under development.

However, these new medications have yet to prove that they reduce the incidence of strokes and heart attacks. BCC Research expects the global stroke management market to reach nearly $28.3 billion by 2019. The Washington Post quoted Steve Miller, Express Scripts’ CMO, as saying that Express Scripts has had far more “collaborative discussions” with the companies developing PCSK9 drugs than it did with the firms that developed drugs to treat hepatitis C.

In a statement, Amgen noted that despite the huge annual spending on cardiovascular disease in the United States, many patients can’t keep their LDL cholesterol levels in check. Providing new drugs to help accomplish that goal could ultimately be “part of the solution to rising healthcare costs,” the company said.

A similar argument can be made for the pricey drugs used to treat other diseases. The rub? Where the money will come from in order to get from point A--the costly medication--to point B: Better long-term health outcomes that would, at the end of the day, reduce overall healthcare costs.